TBI Expert View is our focused look into the evolving world of global VAT and what changes companies should be considering and planning for.
In Episode 2 of Series 1 of TBI Expert View, Teodora Vallone of Taxback International looks at the impact that changes to digital tax processing will have on businesses.
In an era of increasing global digitalisation of tax processes it’s important for businesses to understand their implications and future direction. Taxback International’s Senior VAT Compliance Manager, Teodora Vallone provides her expert view, from over two decades of international VAT and GST experience, on the impact that digital tax processing evolution will have on businesses and the potential opportunities and challenges ahead.
Generally speaking, digitalisation is one of the widely-discussed topics in our times. This is true for individuals benefiting from the simplification of everyday life. But businesses are also greatly benefiting. Digitalised tax processes provide businesses unprecedented insight into their activities via data analysis and better overall management of systems and processes.
Tax administrations around the world are also adjusting and digitalising their processes. They are interfacing their systems with those of taxpayers to adapt revenue collection models to a changing global economy.
As a consequence of digitalisation, government services present a different degree of compliance and reporting requirements, and businesses are faced with challenges. Complex systems and processes need to be managed to provide the correct information to the tax authorities, both locally and globally.
The objective of digitalisation is the harmonization of taxes and minimising the burden on businesses. The principles applied by the tax authorities are those of effectiveness in data collection and balance between their revenue interest and taxpayers’ interest.
Ideally, technology develops to minimise administrative and compliance costs for both taxpayers and tax administrations. In this view, the technology used by the tax authorities should integrate with that of taxpayers to improve compliance and raise trust as transparency is the main feature of the digital tax evolution.
It depends. It depends on the businesses themselves, as some are more technology-savvy, while others are catching up.
However, business systems are very different and a “one-size fits all solution” does not exist. Because of this, some businesses endure more difficulties than others. This is to be expected though, as every solution proposed will have a good side for some businesses and a bad side for others.
Tax authorities should not ignore that technology evolves rapidly, and the new systems that are developed should be future-proofed to avoid overburdening businesses trying to adapt to new requirements.
Yes, quite possibly. VAT is applied on transactions and transactions form the basis of the revenue. Tax authorities can track transactions on imports, sales, invoices, receipts, and so on. For tax authorities, a digitalised VAT process is crucial for key insights and learning. Once they have access to this information they can have a reliable basis to impose taxation, whether it’s direct or indirect.
There is a high frequency of real-time filing and this helps tax authorities combat fraud. The main purpose is the harmonisation of tax systems around the globe by implementing new requirements and systems and giving tax authorities cross-border access to information. In this respect, digitalisation could be a great thing if it’s implemented in the right way.
However, tax administrations should avoid creating a ‘separate universe’ of document types, orchestrating different processes and technical standards concerning various taxes. As continuous transaction monitoring is the purpose of digitalisation, real-time data transmission is the way to ensure tax is calculated and paid without too much manual intervention between transactions and declarations.
At the moment, tax authorities are focusing on the digitalisation of corporate tax first and then VAT or vice versa. This requires a double effort on businesses to adapt. However, an organic approach using real-time transmission of VAT information would be sufficient to provide a complete set of information for all taxes. This would also simplify business adaptation to the digital requirements of tax authorities by streamlining those reporting requirements into one.
There is not much consistency across jurisdictions. A simple local business may be able to invest in time and resources once, however, it can be a real pain for complex businesses to adapt their systems to local requirements and international requirements. Especially if they have a presence in many countries.
Businesses that do not have internal digital expertise need to look outside for support. Many firms are offering VAT compliance solutions that can be either tailored for businesses or standardised. However, businesses should adopt solutions that simplify their compliance processes whilst adhering to the tax authorities’ digital requirements.
Another challenge is resources, a lot of time is required during the design and implementation phase. This is both time-consuming and translates into a financial cost. Therefore, any investment in technology should be viewed as a long-term investment that will be offset by future savings.
The opportunities for businesses are multiple:
There is no “one-size-fits-all” solution as the challenges are multiple and vary from business to business. It depends on the types of transactions, presence across jurisdictions, number of VAT registrations, VAT grouping, number of systems in use, and eventually, the ability or inability to build a consistent tax logic for streamlining the information for VAT data elaboration and VAT reporting.
Businesses should do their homework before approaching any technology provider.
They should consider the complexities of their structure ahead of signing any agreement and should aim at implementing a compliance/reporting solution that can deal with those complexities maintaining data integrity.
They should also consider solutions with in-built error learning. One that can reliably work the data input to extract the correct information. Eventually, the solution should eliminate the need for human intervention and optimise the automated transmission process.
Ultimately, businesses should aim at implementing a long-lasting solution. This means it must be flexible enough to adapt to both new tax requirements and business changes.
Providers of tax compliance services are possibly better placed than other firms to assist businesses in their digital journey. This is because their expertise lies around the ins and outs of tax authorities’ compliance requirements in different jurisdictions and complexities within businesses. They also deal with different types of data, transactions, and processes from business clients in many industries. Naturally, they have a strong understanding of VAT data processes and reporting.
The road to the ideal digital tax system is long and challenging. But as technology speeds up, tax authorities and businesses alike will have opportunities to design and implement the best possible solution for their mutual benefit. These tech advances will also reshape the landscape of tax and, consequently, create a requirement for a different kind of tax expertise as the support needed by businesses will be beyond traditional VAT consultancy so the roles of advisors will change dramatically.